East Hagit Project Teaser Hagit Teaser.pdf · Diesel oil. • After the ... electricity consumption forecasts, the installed capacity in 2030 should reach 23,350 MW. Electricity Consumption

June 2019 - Confidential 1

East HagitProject Teaser

October 2020PLEASE NOTE: This information may include "Inside Information" in accordance with Israel's Securities Law, 1968, and making use of this information may constitute a criminal offence pursuant to that Law. Therefor Please treat this information as CONFIDENTIAL.

IEC - Structural Change Administration October 2020 - Confidential


Executive Summary

• In the last decade, substantial natural gas reserves were discovered in Israel’s economic waters. Combined with Government policy, thispaved the way for substantial activity of Independent Power Producers (‘IPPs’). IPPs, including renewables accounted for approximately34% of Israel’s actual electricity generation in 2019.

• Following these developments and the recent structural reform in both the electricity sector and Israel Electric Corporation Ltd. (‘IEC’),IEC will be selling the Eastern part of the Hagit power generation site which includes a type E combined cycle facility (the ‘East Hagit’).

• The Site’s capacity is approximately 660MW, composed of Class E combined cycle units 3-4-7 (units 3-4 being gas turbines and unit 7 asteam turbine) with a capacity of 330 MW, Class E combined cycle units 5-6-8 (units 5-6 being gas turbines and unit 8 a steam turbine)with a capacity of 330MW. All Gas turbines in the Site are dual fuel, with the primary fuel being Natural Gas and the secondary fuel beingDiesel oil.

• After the completion of the sale process, IEC will own the Western part of Hagit power generation site including two combined cycle unitswith installed capacity of approximately 734MW, as well as the switching and substation yards of 161KV and 400KV.

• Relevant entities interested in the sale process of the Site and in receiving additional information regarding the conditions of participationin the sale process are invited to submit their details to IEC by e-mail to: [email protected].

330 330

CC Class E (3-4-7) CC Class E (5-6-8)

Installed Capacity By Turbine Units (MW) Site Actual Generation (GWh)

363 351

1,097868

612845

338

682

7471,022

603

711

701

1,033

1,844 1,890

1,216

1,556

2014 2015 2016 2017 2018 2019

CC Class E (3-4-7) CC Class E (5-6-8)


mailto:[email protected]


Section 1



Generation Capacity Development in Israel

Generation Capacity and Demand (MW/MWh)

Source: IEC’s Financial Statements, Electricity Authority’s Electricity Status Report for 2019, June 2020.

11,297 11,649 11,664 12,769 12,759 13,248 13,483 13,617 13,617 13,617 13,617 13,335 12,752

71174 228

278 518516

734

1,9562,980 3,060 3,199 3,334 4,148359

596

754 911 946 1,3032,023

11,36811,823 11,892

13,047 13,27713,764

14,576

16,169

17,351 17,588 17,762 17,972

18,923

10,070 10,200 10,280

11,53011,110

11,89011,640

11,335

12,905

12,62312,746

12,92113,568

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

RenewableEnergy IPPs

IPPs (Gas Fired)Installed Capacity

IEC InstalledCapacity

National PeakDemand (MWh)

Trends

The demand for electricity in Israel is growing at a fast and steady pace, from approximately 4,000 MWh in 1990 to 13,568 MWh in 2019

Demand is driven by population growth, the increase in electricity use per household and growth of the business sector

70% 65% 65%59% 59% 61%

52% 49% 45%36% 32% 30% 30%

20% 26%33%

39% 35%

17%44% 50% 53%

61%63% 67% 64%

10% 9% 2% 2% 6% 22% 4% 1% 2% 3% 5% 3% 6%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Others

Natural Gas

Coal

Electricity Generation Fuel Mix Development

The temporary decrease in natural gas usage for electricity generation In 2012 was due to multiple outages of the gas supply from EMG.



Electricity Sector - Overview

Transmission

Source: IEC’s financial statements for 2019FY.

DistributionGeneration

Total Installed Capacity – 18.9 GW

Total Energy Generated – 72,505 GWh

11

Switching

Stations

5,661 Km high

and ultra-high

voltage lines

204

Substations

66,670 km

medium and low

voltage lines

2.9 million

customers

Energy GeneratedInstalled Capacity2019

%GWh%MW

66%47,78467%12,752IEC29%21,35722%4,148IPPs (Gas fired)5%3,36311%2,023Renewables

100%72,505100%18,923Total

Renewables

IPP’s



Israel Electric Corp. at a Glance

Source: IEC’s financial statements for 2019FY.1. As of December 31, 2019.2. 57 substations are privately owned.3. A State of Israel guarantee for the existing securities of IEC are negligible compared to the company’s overall financial debt.4. Including energy purchased from IPPs.

Denotes USD figures USD/NIS exchange rate of 3.46 as of December 31, 2019.

• Established in 1923, 97 years of operation, the Israel Electric Corporation Ltd. (“IEC”) is the sole vertically integrated electric utility company in Israel and generates, transmits, distributes and supplies the majority of the electricity used in Israel

• IEC is appx. 99.85% owned by the State of Israel

• IEC had total assets of NIS 87.5 billion and 11,391 employees as of December 31, 2019

• As of December 31, 2019, IEC serves 2.9 million residential, commercial, agricultural and industrial customers throughout the State of Israel including East Jerusalem and the Palestinian Authority

• Total electricity sales4 of 53,119 GWh for the period ended December 31, 2019

IEC Power Grid

Gas turbine (internal combustion) / Combined-cycle (internal combustion and steam)

Steam (dual purpose)

400 kV lines

161 kV lines

12.8 GWInstalled capacity

16Power stations

Generation (1)

5,661 kmHigh and ultra-high voltage

transmission grid

215(2)

Switching stations &sub-stations

Transmission (1)

66,670 kmMedium and low

voltage lines

2.9 mnCustomers

Distribution (1)

2019 Key Financials Credit Ratings as of June 30, 2020

IEC GlobalBaa2 / BBB

(Positive / Stable)(Moody’s / S&P)

State of Israel (3)

A1 / AA- / A+(Stable / Stable / Stable)(Moody’s / S&P / Fitch)

IEC LocalAa2.il / ilAA+

(Positive / Stable)(Midroog / Maalot S&P)

Revenues

NIS 24.7 billion

$B7.1

EBITDA

NIS 8.1 billion

$B2.3



Energy Sector in Israel – Future Outlook

Natural Gas Sector Recent Developments

Until the early 2000s, natural gas use in Israel was minimal. Since then, substantial natural gas reserves have been discovered in Israel’s economic water (‘Yam Tethys’ ‘Tamar’, ‘Karish and Tanin’ and ‘Leviathan’). Israel’s gas reserves are estimated at 980 BCM.

Natural gas consumption for electricity generation is expected to reach 12.4 BCM in 2030 which will account for 70% (67 TWh) of expected generation.

The rapid development in natural gas supply enables IPPs to compete in the electricity generation segment by investing in a more efficient generation technologies such as combined cycle power plants.

On July 29th 2018, following the Government resolution regarding the reform in the electricity sector1, the Government of Israel has approved the proposed resolution no. 4080 for shutting down and transferring to preservation the coal generation units 1-4 in Hadera by 20222.

According to the Electricity Authority, the future electricity generation for the Israeli economy is expected to reach 97 TWh in 2030, with a peak demand expected to reach 19,622 MWh in 2030.

According to the Electricity Authority, in order to support the electricity consumption forecasts, the installed capacity in 2030 should reach 23,350 MW.

Electricity Consumption and Generation Forecast*

Electricity Sector Natural Gas Consumption Forecast (BCM)*

8.59.1 8.8

8.3 8.6

10.310.7 11 11.3 11.5 11.7 12 12.2 12.4

2017A 2018A 2019A 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

68 70 73 74 76 78 81 83 85 87 90 92 95 97

12,746

12,921

13,568

14,802

15,197

15,609

16,072

16,524

16,966

17,497

17,999

18,512

19,051

19,622

2017A 2018A 2019A 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Total production (TWh) National Peak demand (MWh)

Source: BDO - Israel Natural Gas Demand Forecast 2017-2040, Ministry of Energy, Delek drilling financial reports for 2017A, Electricity Authority’s Roadmap for the Development of the Generation Segment,June 2018 , Review of Natural Gas Market in Israel 2019 - Natural Gas Authority, Government resolution 4080.1. Government resolution no. 3859 dated 03/06/2018 regarding the structural reform in the electricity sector and restructure process in IEC.2. Under resolution 4080, the shutting down of units 1-4 in Hadera will be subject to (1) the connection of 3 different gas fields to INGL transmission network via different ports, and (2) a new combined cycle

power plant (600 MW) will be built by a subsidiary of IEC and will be operational no later than 01/06/2022.

* 2017-2019 based on actual data. Future years data is a forecast.


https://www.gov.il/BlobFolder/reports/ng_2019/he/ng_2019.pdf


Regulatory Environment

Source: Ministry of Energy, EA reports.1. with the exception of a production facility of less than 16MW. License for production, supply and distribution of capacities larger than 100MW, 100MW and 5% of the market’s consumption respectively,

require an additional approval of the Minister of Energy.2. The Electricity Sector Rules (Transactions with an Essential Service Provider), 2000, the Electricity Authority resolution dated May 13, 2019 (Decision No. 5 (1358) from meeting 558) including the

explanatory notes and the Q&A document, The Electricity Sector Rules (Criteria for the Level, Quality and Quality of Service Provided by an Essential Service Provider) (Amendment No. 4), 5742-2020,Rules of the Electricity Sector (Manufacturer Transactions in the Electricity Transmission Network with an Essential Service Provider), 5742-2020.

3. Book of Standards in English and in Hebrew. See also EA resolution No. 5 (1358) dated 13/5/2019 regulating transactions between the System Operator and electricity generators connected to theTransmission grid and new standards for these producers.

4. The Resolutions include, inter alia, decision of the Ministerial Committee for Social and Economic Affairs (the Socio-Economic Cabinet) No. SE/43 of November 4, 2002 and also Government Resolutionnumber 3484: Government policy in the field of energy production from renewable sources, of July 17, 2011.

5. Israeli government’s resolution 3859.

The Electricity Sector Law

1996

The Electricity Sector Law 1996 (“ESL”) and the regulations promulgated thereunder provide the legal andregulatory framework for both public and private activities in the electricity sector. Any entity interested inengaging in any activity in the Electricity Sector must obtain a license under the ESL1.

It is the Government's declared policy to encourage the entry of private producers and suppliers into theElectricity Sector and the entire regulatory scheme is constantly being adapted with the view of enhancing thefulfillment of this policy.

Ministry of Energy

The Ministry of Energy is responsible for the energy economies and national resources of the State of Israelincluding: electricity, fuel, LP gas, natural gas, etc. The Ministry of Energy supervises the public and privateentities involved in these fields and acts to ensure an adequate solution to the changing energy and infrastructureneeds of the national economy, while regulating the market and protecting both the consumer and theenvironment.

Existing IPP’s Tariff

arrangements

In accordance with Government resolutions4 and the Ministry of Energy policy to incentivize the private sector tojoin the electricity generation sector, tariff arrangements including availability tariffs, as well as financingsupporting arrangements, were provided to the IPPs in order to mitigate certain risks.

Book of Standards2

According to clauses 30 (2) and 33 of the ESL, 1996, the Electricity Authority is in charge of publishing the Book ofStandards, for setting the standards for the level and quality of services provided by an essential service providerlicensee to electricity consumers, electricity supply licensees, independent power producers, electricity storagelicensees or to another essential service provider3.

East Hagit’s Regulation

According to clause B.9.f of Government resolution 3859 approved on 3/6/2018, the Electricity Authority isinstructed to publish regulation that will enable a competitive and efficient sale of the generation sites which areto be sold, six months prior to the publishing of the competitive sale process by IEC5.


https://pua.gov.il/English/Documents/BookOfStandards.pdf

https://pua.gov.il/Standards/Documents/sefer_08_2018.pdf

https://www.gov.il/he/Departments/policies/dec3859_2018


IEC Structural Reform Highlights

Source: IEC’s financial statements, Israeli government’s resolution 3859.1. Amendment No. 16 to the Electricity Sector Law 1996, as published in the official publication of the israeli Codex on july 26, 2018, can be found here.2. The Alon Tavor power generation site was sold.3. The Ramat Hovav power generation site is under advanced process of selling. The handover date of the site's ownership, is expected on December 3, 2020.4. Due to regulatory difficulties in handing over possession of the Reading site, it was decided to sell the East Hagit site before selling the Reading site.

Electricity Generation Segment

By 2023, 5 gas fired generation sites with total installed capacity of 4,500MW (including the Site) will be sold. In addition, IEC will build and operate two new gas-fired combined cycle turbines in ‘Orot Rabin’ site with a total installed capacity of app. 1,200MW.

Transmission & Distribution Segment

IEC will retain a natural monopoly in the transmission and distribution segments while the supply segment will be incrementally opened to competition.

System Operator Activity

The system operator and planner (part of IEC today) will be transferred to a new government-owned corporation and will be totally separate from IEC.

Operational Efficiency Measures

The reform includes IEC reducing approximately 1,800 permanent employees and implementing a more flexible working relationship between IEC’s management and the workers’ labor union.

Government resolution 3859 approved on 3/6/2018 and Amendment No. 16 to the ESL1, regarding a reform in the electricity market and a structural change to IEC requires a vast reform in IEC’s activity.

TotalEshkolEast HagitReading4Ramat Hovav3Alon Tavor2Site

20232022202120202019Expected Sale Year

4,491MW1,683MW660MW428MW1,137MW583MWInstalled Capacity

Electricity Generation Sites Sale Planned Schedule


https://www.gov.il/he/Departments/policies/dec3859_2018

http://www.nevo.co.il/Law_word/law15/memshala-1244.pdf


Section 2Section 2



Hagit Site Location

Hagit

Power Plant



The Hagit Site Location – Cont.

Hagit Facility – Boundary of ownership.

Eastern Polygon for sale (approx. 163,000 Sqm).

Water system – retained by IEC (approx. 7,000 Sqm).

PRMS.

Transmission pipeline and natural gas delivery network to generation units.

161 kV lines.

400 kV lines.

Legend



The East Hagit Site - Overview

Generation Units

Actual Generation Diesel oil (GWh)

Actual Generation NG (GWh)

700

1,023

1,840 1,840

1,208

1,515

2014 2015 2016 2017 2018 2019

unit 3 unit 4 unit 5 unit 6 unit 7 unit 8

Year ofInception

Installed Capacity (MW)

1994115Class E CC - GT unit 3


2002100Class E CC - ST unit 7



2002100Class E CC - ST unit 8

660Total

0.8

10.2

3.8

49.3

7.9

41.7

2014 2015 2016 2017 2018 2019

unit 3 unit 4 unit 5 unit 6 unit 7 unit 8



Section 3



Splitting Hagit Site

Most of the plots sold (approx. 163,000 Sqm) are privately owned by IEC, although the registration process

in the Land Registry and Settlement of Rights in the Ministry of Justice have not yet been completed.

One plot, of an area of 7,000 Sqm, is in a long-term lease from Israel Land Authority. IEC has already begun

proceedings for the acquisition of the full rights for this plot as well as planning preparation, to split all of

the sold land from the rest of the Hagit site. Once the plan will be approved by the authorized committee, it

will serve as a basis for the application of registration of real estate rights, and will enable the registration

of the buyer's rights under it, once approved (for all or some of the relevant plots).

The success and the pace of progress is dependent on the decisions and procedures of the planning

institutions and ILA. However, there is no guarantee that these procedures will be concluded in time for the

site's transfer of possession of ownership to the buyer.

Splitting and

Registration of

the Land Sold

Following the Structural Reform in the Israeli electricity sector, IEC will split the Hagit power plant site into

two separate power generation sites. The Eastern part of the Hagit site will be sold, and the Western part of

Hagit site will remain in the possession of IEC.

For this purpose, IEC intends to separate some of the site's infrastructure into the two separate sites.

Infrastructures such as entrance, boundary fence, electrical infrastructure, as well as other infrastructures

will be separated.

Infrastructure

Separation

While the intention is to split the site, In order to reduce costs and due to technical limitations, not all the

infrastructure will be constructed separately for each of the sites. Therefore, a sale of permanent services

from IEC to the IPP and vice versa is required. These are services such as the supply and storage of water

and storage of diesel oil as well as other services.

The sale of services is subject to the approval of the Electricity Authority and may even require legislative

amendment.

Sale of

Permanent

Services



Section 4



Key Terms and Prerequisites1

Key General TermsKey Prerequisites

• The Site is being sold for the sole purpose of generating electricity, as permittedunder a new electricity generation license to be granted to the purchaser by theElectricity Authority, subject to compliance with the conditions required underthe relevant regulations and the Electricity Sector Law, and the criteria of theElectricity Authority2 and subject to the purchaser obtaining all requiredapprovals for the purchase of the Site and its operation.

• The Site is being sold AS IS, WHERE IS and WITH ALL FAULTS. Norepresentations or warranties will be made by IEC regarding the Site except asexpressly set forth in the final sale agreement.

• The operation and maintenance of the Site after the execution of the final saleagreement, will be at the sole responsibility of the purchaser .

• The Site will be sold without a GSPA (Gas Supply Purchase Agreement),however there might be an option to buy gas for a certain period from IEC.

• The Site is operated by 40-503 employees that will be seconded to thepurchaser by IEC for a period of 5 years after the completion of the sale process.The purchaser will bear all employment costs regarding the employees for theabove period.

• The purchaser must have a strong financial position and thefinancial capability of operating the assets as required by theElectricity Sector Law regulation and Electricity Authority criteria.

• The purchaser must have a proven experience in operating gas-powered power plants as required by the Electricity Sector Lawregulation and Electricity Authority criteria.

• The purchaser must meet all other terms and criteria as will bedefined by the EA in the new electricity generation licenses to begranted to purchaser and will be approved by the Minister ofEnergy.

• The transaction will be subject to approval by the CompetitionAuthority and other regulatory approvals.

• The transaction will be conducted by IEC and will be subject tothe Israeli Tender Law and regulations.

• The purchaser will have to secure additional permits/approvalsinter alia, Israel Land Authority approval, environmental permits,business licensing etc.

1. Terms and prerequisites presented in this document are not final. Final transaction terms and prerequisites are under formulation.2. The Electricity Sector Rules (Transactions with an Essential Service Provider), 2000, the Electricity Authority resolution dated May 13, 2019 (Decision No. 5 (1358) from meeting 558) including the

explanatory notes and the Q&A document, The Electricity Sector Rules (Criteria for the Level, Quality and Quality of Service Provided by an Essential Service Provider) (Amendment No. 4), 5742-2020, Rulesof the Electricity Sector (Manufacturer Transactions in the Electricity Transmission Network with an Essential Service Provider), 5742-2020.

3. Detailed information regarding the exact number of employees to be “lent” by IEC to Buyer will be provided in the process documents.

Pre-Qualification Terms The Participants will be required to: (a) Comply with all of the qualification conditions for obtaining electricity generation licences for the East HagitTransferred Facilities pursuant to the provisions of the Electricity Sector Law and the regulations enacted thereunder. The Bidders will be required, duringthe Tender Stage, to include an undertaking from the Members thereof to inject shareholder equity of a minimum value into the Bidder, all in accordancewith the provisions of the Tender Documents; (b) Obtain approval, if necessary, from the ILA (including compliance with the provisions of the Israel LandsLaw and the procedures of the ILA, and including with respect to the conferral of rights in real estate upon a Foreign Entity; (c) Obtain approval, ifnecessary, from the Competition Authority, including, to the extent required, consultation with the Concentration Committee; and (d) Obtain approval, ifnecessary, from the Advisory Committee for the Examination of National Security Aspects in Foreign Investment in the Ministry of Finance, in accordancewith the decision of the State Security Cabinet (Ministerial Committee for National Security Affairs) No. B/372 dated 10/30/19.



Site Sale Process – Key Milestones1

Financial Close

Pre-Qualification Publication

Publication of an invitation for Pre-Qualification to participate in a tender for the submission of bids topurchase the East Hagit production site

HandoverExecuting all transaction documents, transferring the responsibility on all operation & maintenance ofthe Site to the buyer, including finalizing all legal and regulatory issues

10/2020

Tender Publication and Bid Submission2

20/01/2022

Declaration of the Successful Bidder

PQ Evaluation ProcessFollowing the receipt and evaluation of the PQ Submissions, the IEC will announce the EligibleParticipants that will be invited to participate in a tender for the submission of Bids

01/2021

Phase I

Phase II

1) The schedule and process are tentative and subject to approvals and other developments.2) The criterias of choosing the Successful Bidder in the tender, have not been determined.

As part of the sale process, tariff arrangements for the Site’s post-sale operation will be determined and published be the EA

The Successful Bidder will execute the financial close, and will provide evidence that the contractualmilestones according to the terms and dates specified in the sale contract have been met

07/2021-01/2022

The Eligible Participants will receive the Tender Documents, will gain access to a Virtual Data Room andwill be given the opportunity to conduct further due diligence after which Bids will be submitted

The Successful Bidder will be declared shortly after the completion of the Bids Evaluation Process, subjectto execution of an additional competitive process or “Best and Final” process. A sale contract to besigned following final negotiations

01/2021-07/2021



Disclaimer

IEC shall be under no obligation to issue a procurement procedure in connection with the sale of East Hagit site, or any other site, whether pursuant to this Teaser or otherwise.

IEC shall be under no obligation to enter into any transaction with any party whomsoever who responds to or participates in this Teaser, whether in connection with the sale of East Hagit site, or otherwise.

IEC shall be entitled to use the information obtained from the process as well as any data, solution, process, technique or suggestion contained in any of the responses or documents/response material submitted to IEC in relation thereto. IEC shall be permitted to use such information in order to facilitate and progress the sale process and/or in order to secure any permits and approvals which may be required during the process

A response to the Teaser shall not bestow upon any person or entity responding thereto any advantage in any procurement procedure, if such procedure should be issued at all, and IEC shall not be obliged to include any respondent to this Teaser in any procurement process.

Any exceptions, changes or additions to these above instructions (whether contained in any response to the Teaser or otherwise) shall be devoid of validity and legal effect and shall not obligate IEC.

The schedule presented in the Teaser is preliminary , non-binding, and is both subject to any change and the granting of appropriate permissions by the regulator. IEC makes no representations or warranties with regard to any of the information contained therein and accordingly, shall assume no risk or responsibility for any damages which any third party may incur as a result of the information contained herein.

The stages of the procedure and the provisions thereof are subject to change at the discretion of IEC as well as in accordance with the requirements of the competent authorities, should the circumstances dictate.

IEC does not undertake to contact any of the entities which express interest in the procurement process, nor will it be obliged to respond to details addressed to the IEC following the publication of this Teaser.

PLEASE NOTE: This information may include "Inside Information" in accordance with Israel's Securities Law, 1968, and making use of this information may constitute a criminal offence pursuant to that Law. Therefore please treat this information as CONFIDENTIAL.



Contact Details

The dedicated E-mail address for the project:

[email protected]

Amir Livne, Senior Vice PresidentStrategy, Innovation & Re-Structure ProcessIsrael Electric Co.Phone: +972-76-8630002 Fax: +972-72-3433666

יועץ פיננסי

תפקיד, שם פרטי ומשפחה

חברה

Tel: +972-Fax: +972-E-mail: mail@
